(In 5th paragraph, corrects name of Roth's firm to MUFG
Securities from Mitsubishi UFJ Securities USA))
* Longer-dated U.S. yields fall to two-week lows
* Yield curve flattens after Fed hints fewer rate hikes
* U.S. sells $11 bln 10-year TIPS to strong demand
* U.S. jobless claims hit 2-month low, existing home sales
By Richard Leong
NEW YORK, Sept 22 U.S. Treasury yields fell on
Thursday with benchmark yields hitting near two-week lows on
revived bets the Federal Reserve would raise interest rates only
slowly due to weak economic growth and inflation stuck below its
The U.S. central bank on Wednesday held its target range on
short-term rates unchanged at 0.25 percent to 0.50 percent, and
left the door open for a possible rate increase in December.
Analysts also pointed to Fed policymakers' forecasts, which
they said reduced their expected average number of annual rate
increases to two from three for 2017 to 2018.
Traders' perception that a December rate hike is far from a
sure thing, and that the Fed is on a slow path of rate
normalization, led them to favor longer-dated Treasuries over
shorter-dated issues. The move pushed the yield curve to its
flattest level in more than a week.
"If you think they're going to go (slowly), the curve will
flatten," said Thomas Roth, head of U.S. Treasury trading at
MUFG Securities in New York.
Federal funds futures implied traders saw about a 58-percent
chance the Fed would raise rates at its Dec. 13-14 meeting,
unchanged from Wednesday, according to CME Group's FedWatch
In addition to the Fed's latest signals, the Bank of Japan's
change of its policy stance on Wednesday, when it said it would
focus on targeting bond yields and allowing inflation to rise
above 2 percent, is seen supportive for bonds and stocks
"The BOJ and Fed announcements are a twin-win for stocks and
bonds. They signal central banks have the back of financial
markets by keeping policies accommodative," said Jeff Kravetz,
regional investment director with The Private Client Reserve at
U.S. Bank in Phoenix.
U.S. benchmark 10-year Treasury notes rose 9/32
in price, yielding 1.637 percent, down 4 basis points from
Wednesday. It touched 1.6080 percent which was its lowest since
Sept. 9, Reuters data showed.
The yield gap between five-year and 30-year Treasuries
contracted to 118 basis points, about 1 basis point flatter than
The yield curve steepened from its initial levels after data
showed domestic jobless claims unexpectedly fell to a two-month
low in the week ended Sept. 17, suggested underlying strength in
the labor market.
But the yield curve resumed its flattening after a surprise
0.9 percent drop in existing home sales in August.
On the supply front, the government sold $11 billion of
10-year Treasury Inflation Protected Securities to the strongest
overall bid since May 2014.
September 22 Thursday 2:57PM New York / 1857 GMT
US T BONDS DEC6 167-15/32 0-28/32
10YR TNotes DEC6 130-212/256 0-60/256
Price Current Net
Yield % Change
Three-month bills 0.175 0.1775 -0.059
Six-month bills 0.3875 0.3936 -0.058
Two-year note 99-242/256 0.7785 -0.012
Three-year note 99-228/256 0.9123 -0.019
Five-year note 99-192/256 1.1772 -0.021
Seven-year note 99-116/256 1.4581 -0.030
10-year note 98-200/256 1.6338 -0.034
30-year bond 97-192/256 2.3552 -0.044
DOLLAR SWAP SPREADS
Last (bps) Net
U.S. 2-year dollar swap 25.25 -0.75
U.S. 3-year dollar swap 17.50 -0.75
U.S. 5-year dollar swap 2.75 -0.25
U.S. 10-year dollar swap -16.00 -0.50
U.S. 30-year dollar swap -55.25 -1.25
(Reporting by Richard Leong; Editing by Nick Zieminski)